Common Mistakes Investors Make

The good news is you don’t need to make mistakes to learn lessons. Learn from other investors’ mistakes.

My good friend keeps on telling me he wants to invest but never started it until now. He thinks he still needs more time to fully understand the market and all the jargon investors are using during the usual conversation. I asked him to attend some seminars and read some books, which he did, but it didn’t prod him to invest.

If you believe that entering the market requires a perfect investor, you will never be able to start investing. Investors had blunders when they were starting and they may be having them until now. But there are people like my friend who will make sure that everything is perfect before investing. That only stupid investors make mistakes is a wrong idea. The smartest and most successful people, even the likes of Warren Buffet, made mistakes. Albert Einstein said: “anyone who has never made a mistake has never tried anything new.” My friend never made a mistake in investment because he has not tried investing for the past five years.

We all make decisions with results that we don’t like. One of the best traits of a good investor is to be forgiving. You must go easy on yourself when you mess-up. No need to make things complicated. The good news is you don’t need to make mistakes to learn lessons. Learn from other investors’ mistakes.

A trap in investing is chasing returns. We want to earn from our investment to compensate for the risks we took. Some think the way to work with the market is to time it. There is nothing wrong about it. But, successfully timing the market is extremely difficult. The funny thing is there’s more to success than returns, and yet we look at returns as our sole purpose. It’s important to know why you are investing. Is it for capital appreciation, passive income, or capital preservation? Knowing the purpose will save you from frustration.

Another trap is too much connectivity and constant monitoring of your investment. If you are being paid to monitor the market, that is perfectly fine. But if your main livelihood has nothing to do with the market, then excessive monitoring would be dangerous. If you fully understand what you’re doing, then don’t allow your investment to ruin your personal or even professional life. Technology is a great ally in modern investing. But too much of a good thing becomes bad.

If there are people who are overcautious on their investment, there are also people who are being overconfident. When you think you are good at something, it’s easy to overestimate yourself. Try to be honest with yourself. How many times did you think you can take all the challenges and later found out it was too much? It is a common pitfall of smart investors. But philosophically speaking, the wisest people in the world usually say they know nothing. The moment you start to assume you’re better than the rest, you are already losing.

To avoid falling into traps, develop an investment plan. Starting from your goals, ask yourself why invest your hard-earned money. If you don’t feel qualified to do this, seek help from a reputable financial planner. Don’t expect your portfolio to make you rich overnight. A long-term investing habit would help build your wealth.

Mistakes are an integral part of growing our money. Knowing all the possible mistakes you might commit will somehow help you avoid them. Follow principles appropriate to your investing behavior and style, and you will be on your way to building the assets that will provide you not just wealth but also peace over the long haul.

Capt. Christopher G. Cervantes is a registered financial planner of RFP Philippines. He is a seafarer for more than 15 years and author of the best-selling book Financial Planning for the Fast Changing World.